View of buildings in the financial district of Lujiazui in Shanghai on May 7. Photo: VCG

Office vacancy rates in Tier-1 cities rose in the second quarter and rents fell, reflecting a decline in demand, according to a report sent to the Global Times by commercial real estate service firm Jones Lang LaSalle (JLL) on Sunday. 

According to industry experts, the fall in demand reflects cooling in certain sectors, as well as ongoing deleveraging efforts carried out by the central government.

During the second quarter, 143,000 square meters of office space were provided in the market. The overall office vacancy rate in Beijing rose 1.1 percentage point to 6.9 percent, while the average rent dropped 1.2 percent compared with the previous quarter. 

Similar trends were observed in other big cities in China. In another report sent by JLL, in North China's Tianjin Municipality, the vacancy rate of office space in the city center is expected to be pushed up to 44 percent by a high supply this year. The monthly rent in the second quarter dropped 2 percent from the previous quarter to 88.8 yuan ($12.91) per square meter. 

In Shanghai, the overall office vacancy rate surged to 22.3 percent from 16 percent in 2018, according to a report by caixin.com.

Higher vacancy rates and declining demand may reflect a cooling in the physical presence of the services sector in various cities, as well as years of deleveraging efforts in China, according to experts. 

"One reason behind the decrease in the demand for office space is the structural change in many service sectors from offline to online," Cong Yi, a professor at the Tianjin University of Finance and Economics, told the Global Times on Sunday, 

"For example, in Tianjin, offices were once largely occupied by freight forwarding agencies, but now some of their business has shifted to e-commerce, resulting in less demand for office buildings," Cong said.

Another reason, Cong noted, is the effort to deleverage the economy, which has successfully reduced speculative investment in the office building market. 

According to a report by 21jingji.com, the leverage rate in the economy in China surged to 225 percent in 2017 from 138 percent in 1998. Since 2015, the government has launched policies to regulate investment behavior.

"Real estate has always been a popular choice for speculators," Cong said. "In recent years, especially in 2017 and 2018, China's deleveraging efforts bore results. This also contributed to lower demand for office space."


Newspaper headline: Office demand shrinks in China's big cities